Scientific researchers looking to launch a start-up company face a highly competitive venture-capital market and have to make sure they take the right steps to win financing for their project.
The successful commercialization of scientific discoveries and innovations is an important driver of new businesses in Canada.
But the closer a business idea is to the laboratory bench the higher the risks are for investors. It can take a couple of years of patient nurturing to bring a knowledge-based start-up to the point of making its first sales and ready for further rounds of financing.
That's why early-stage investors are so careful about examining projects and why researchers with a promising idea must ensure they're well prepared before they seek financing.
The Business Development Bank of Canada (BDC) is the country's largest early-stage venture capital player, investing between $125 million and $150 million in early stage businesses each year. This includes about half of all university spin-off companies.
BDC will look at 30 to 50 projects for every one it accepts, said Michel Ré, Executive Vice President, Investments at BDC.
"We're trying to see what problem is being solved by the new technology and determine if there is a large market for that solution," Ré said. "If it solves an important problem, and there's large market, the chances of a successful commercialization are higher."
Once a project is chosen, early-stage investors like BDC assist the company's founders in the crucial tasks of building a successful company. These steps often include finding experienced management, defining the market for the proposed technology and working to ensure financial and product development milestones are met.
"The risks are big, but success brings high returns," Ré said.
The federal government recently set up an expert panel to advise it on what it can do to increase the likelihood that more new technologies and products will make their way to the marketplace.
The panel will look at unique challenges facing technology start-ups including finding adequate risk capital, global market expertise and a skilled work force.
Ré said researchers looking to commercialize their discoveries should make full use of business-development resources such as technology transfer offices that have been set up at several universities across the country.
Luc Lalande is the head of one such office at Carleton University in Ottawa. Lalande, Director of Carleton's Technology and Research Development Office, said his office helps researchers to bridge the gap between a discovery and the marketplace.
"I find funding to help them to take their technology a step further – perhaps developing a prototype," he said. "I also get involved directly with industry people to validate the technology we're developing. These are people who better understand the industry dynamics and market factors that will influence the success of commercializing this technology."
Lalande said his office may also work to attract early stage financing or management personnel. As well, the office will arrange patents or other intellectual property protection.
He said governments need to do more to ensure promising start-ups get the financing they need, especially by providing tax incentives to investors including so-called angels, wealthy individuals who fund early-stage businesses.
Angiochem Inc., is a young Laval, Que., biotech company that was spun off from research at the Université du Québec à Montréal. The company's innovative platform for delivering drugs to the brain attracted $1 million in seed financing this year from BDC.
Angiochem President Robert Dugré agreed that finding venture-capital financing isn't easy. He recommended start-up companies think long and hard about the market segment they plan to target because market acceptance is a key concern of venture capitalists.
"That choice is very important for a company. It has to to find the (segment that represents the greatest chance for success," Dugré said.
For more information, call 1 877 BDC-BANX (232-2269).
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